Record Six Month Sales – $159.8 Million
Record Second Quarter Sales – $76.4 Million
Six Month Net Income – $6.9 Million
Second Quarter Net Income – $1.8 Million
BOCA RATON, Fla., Sept. 24, 2013 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC:QEPC.PK) (the "Company") today reported its consolidated results of operations for the first six months and second quarter of its fiscal year ending February 28, 2014.
The Company reported record net sales of $159.8 million for the six months ended August 31, 2013, an increase of $18.9 million or 13.4% from the $140.9 million reported in the same period of fiscal 2013. As a percentage of net sales, gross profit was 28.4% in the first six months of fiscal 2014 compared to 28.8% in the first six months of fiscal 2013.
Net sales for the second quarter of fiscal 2014 also reached a record $76.4 million and reflected a gross profit margin of 28.4% compared to net sales of $71.0 million and a gross profit margin of 28.8% for the second quarter of fiscal 2013.
Lewis Gould, Chairman of the Company's Board of Directors, commented: "We are pleased to report that our ongoing strategy focusing on synergistic acquisitions continues to diversify our product offerings and customer base, and our position in the global marketplace. Continued margin pressures, particularly in our North American operations, further support the importance of this strategic focus. As we execute our acquisition strategy and embark on additional sales and marketing initiatives in both the US and internationally, our operating performance should improve. While there can be no guarantees that we will be successful in identifying and completing future acquisitions, we remain optimistic about the opportunities in the market."
The growth in net sales for the three and six month periods ended August 31, 2013 as compared to the comparable periods in the prior fiscal year reflects the impact of our acquisitions of the Homelux and Plasplugs businesses in Europe as well as the Imperial, Nupla and Ludell businesses in the US. Also contributing to the increase was a modest expansion of product lines with existing customers in the Company's operations outside North America. Nonetheless, during the fiscal 2014 second quarter, the cumulative impact of the late fiscal 2013 price decreases and fiscal 2014 second quarter impact of discontinued purchases of certain products by a significant customer in the US and the overall impact of changes in currency exchange rates offset the growth in net sales excluding acquisitions.
The Company's gross profit for the six months ended August 31, 2013 and the second quarter of fiscal 2014 was $45.4 million and $21.7 million, respectively, an increase of $4.8 million or 11.8% and $1.2 million or 6.0%, respectively, as compared to gross profit of $40.6 million and $20.5 million, respectively, during the comparable fiscal 2013 periods. The increase in gross profit reflects the result of acquisitions offset by price decreases and discontinued purchases of certain products by a significant customer, as well as cost increases on certain raw materials and overall changes in currency exchange rates. The decrease in the Company's gross profit as a percentage of net sales for both the quarter and year-to-date as compared to the comparable periods in the prior fiscal year principally reflects changes in the product mix, reduced pricing in our North American mass merchant channel and increases in the cost of raw materials.
Operating expenses for the first six months and second quarter of fiscal 2014 were $39.1 million and $18.9 million, respectively, or 24.5% and 24.7% of net sales in those periods, compared to $33.5 million and $17.1 million, respectively, or 23.8% and 24.1% of net sales in the comparable fiscal 2013 periods. The increase in operating expenses is principally associated with acquisitions and investments in sales and marketing infrastructure as well as US direct marketing costs, offset by a decrease in acquisition and integration costs, and the impact of changes in currency exchange rates.
Non-operating income for the first six months of fiscal 2014 represents the gain related to the sale and leaseback of a Company facility in Canada, net of selling costs and the present value of future lease payments.
Increased interest expense for each of the periods during fiscal 2014 as compared to the comparable periods in fiscal 2013 principally related to the financing of acquisitions, net of cash provided by the sale of the Company's Canadian facility and cash provided by operations.
The provision for income taxes as a percentage of income before taxes for the first six months and second quarter of fiscal 2014 was 24.6% and 31.0%, respectively, compared to 37.0% and 37.6%, respectively, for the comparable periods of fiscal 2013. The effective tax rate in fiscal 2014 reflects the favorable rate impact of the sale of our Canadian property during the first quarter of the fiscal year and the relative contribution of the Company's earnings sourced from jurisdictions with differing statutory tax rates.
Net income for the first six months and second quarter of fiscal 2014 was $6.9 million and $1.8 million, respectively, or $2.09 and $0.54, respectively, per diluted share. For the comparable periods of fiscal 2013, net income was $4.2 million and $2.0 million, respectively, or $1.27 and $.59, respectively, per diluted share.
On September 19, 2013, the Company's administrative and warehousing facility located outside of Melbourne, Australia, was largely destroyed by fire and the facility is currently not usable. The Company is in the process of assessing the impact to its operations and implementing contingency plans. While the Company is insured against casualties, based on information currently available, it expects to incur some loss associated with the fire, which will be recorded in the Company's third quarter results. In addition, the interruption of the Company's ongoing operations in Australia will affect its future operating results. As a result of its recent occurrence, the Company currently is unable to estimate the impact of the interruption on its future results of operations, although the impact could be material during the remainder of the current fiscal year.
Earnings before interest, taxes, depreciation and amortization (EBITDA) and non-operating income for the first six months and second quarter of fiscal 2014 were $8.4 million and $3.8 million, respectively, as compared to $8.4 million and $4.1 million, respectively, for the comparable periods of fiscal 2013.
| For the Three Months | For the Six Months | ||||
| Ended August 31, | Ended August 31, | ||||
| 2013 | 2012 | 2013 | 2012 | ||
| Net income | $ 1,766 | $ 1,961 | $ 6,908 | $ 4,246 | |
| Add (deduct): | Interest expense, net | 233 | 193 | 487 | 357 |
| Provision for income taxes | 793 | 1,180 | 2,259 | 2,495 | |
| Depreciation and amortization | 1,038 | 725 | 2,120 | 1,327 | |
| Gain on sale of property | -- | -- | (3,379) | -- | |
| EBITDA before non-operating income | $ 3,830 | $ 4,059 | $ 8,395 | $ 8,425 | |
Increased depreciation and amortization expenses during fiscal 2014 principally is related to acquisitions.
Cash provided by operations during the first six months of fiscal 2014 was $3.2 million as compared to $4.0 million in the first six months of fiscal 2013, reflecting both the decrease in operating income and additional investments in working capital. Investments in acquisitions totaling $23.8 million during the first six months of fiscal 2014 combined with capital expenditures and the Company's continuing treasury stock program were funded through a combination of borrowings, proceeds from the sale of a Canadian property and cash from operations. During fiscal 2013, Company investments in acquisitions of $7.4 million, capital expenditures and treasury stock purchases were funded by borrowings and cash flow from operations.
Working capital at the end of the Company's fiscal 2014 second quarter was $26.3 million compared to $38.0 million at the end of the 2013 fiscal year. Aggregate debt at the end of the Company's fiscal 2014 second quarter was $32.9 million or 57.0% of equity compared to $15.3 million or 29.6% of equity at the end of the 2013 fiscal year.
The Company will be hosting a conference call to discuss these results and to answer your questions at 10:00 a.m. Eastern Time on Wednesday, September 25, 2013. If you would like to join the conference call, dial 1-877-941-4774 toll free from the US or 1-480-629-9760 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. Second Quarter Conference Call / Conference ID 4641174. A replay of the conference call will be available until midnight October 2nd by calling 1-877-870-5176 toll free from the US and entering pin number 4641174; internationally, please call 1-858-384-5517 using the same pin number.
Q.E.P. Co., Inc., founded in 1979, is a world class, worldwide provider of innovative, quality and value-driven flooring and industrial solutions. As a leading worldwide manufacturer, marketer and distributor, QEP delivers a comprehensive line of hardwood flooring, flooring installation tools, adhesives and flooring related products targeted for the professional installer as well as the do-it-yourselfer. In addition the Company provides industrial tools with cutting edge technology to all of the industrial trades. Under brand names including QEP®, ROBERTS®, Capitol®, Harris®Wood, Vitrex®, Homelux®, TileRite®, PRCI®, Nupla®, HISCO, Ludell, Porta-Nail and Elastiment®, the Company markets over 5,000 products. The Company sells its products to home improvement retail centers, specialty distribution outlets, municipalities and industrial solution providers in 50 states and throughout the world.
This press release contains forward-looking statements, including statements regarding sales growth, pricing pressures, long-term profitability, cost increases, benefits of acquisitions, potential acquisition opportunities, capital availability and the impacts of an Australian facility fire. These statements are not guarantees of future performance and actual results could differ materially from our current expectations.
-Financial Information Follows-
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||
| CONSOLIDATED STATEMENTS OF EARNINGS | ||||
| (In thousands except per share data) | ||||
| (Unaudited) | ||||
| For the Three Months Ended August 31, | For the Six Months Ended August 31, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Net sales | $ 76,418 | $ 71,042 | $ 159,817 | $ 140,877 |
| Cost of goods sold | 54,745 | 50,590 | 114,421 | 100,259 |
| Gross profit | 21,673 | 20,452 | 45,396 | 40,618 |
| Operating expenses: | ||||
| Shipping | 7,023 | 7,214 | 14,964 | 14,084 |
| General and administrative | 6,505 | 5,406 | 12,931 | 10,551 |
| Selling and marketing | 5,506 | 4,627 | 11,544 | 9,050 |
| Other income, net | (153) | (129) | (318) | (165) |
| Total operating expenses | 18,881 | 17,118 | 39,121 | 33,520 |
| Operating income | 2,792 | 3,334 | 6,275 | 7,098 |
| Non-operating income | -- | -- | 3,379 | -- |
| Interest expense, net | (233) | (193) | (487) | (357) |
| Income before provision for income taxes | 2,559 | 3,141 | 9,167 | 6,741 |
| Provision for income taxes | 793 | 1,180 | 2,259 | 2,495 |
| Net income | $ 1,766 | $ 1,961 | $ 6,908 | $ 4,246 |
| Net income per share: | ||||
| Basic | $ 0.54 | $ 0.59 | $ 2.11 | $ 1.28 |
| Diluted | $ 0.54 | $ 0.59 | $ 2.09 | $ 1.27 |
| Weighted average number of common shares outstanding: | ||||
| Basic | 3,274 | 3,310 | 3,275 | 3,320 |
| Diluted | 3,299 | 3,338 | 3,300 | 3,353 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
| (In thousands) | ||||
| (Unaudited) | ||||
| For the Three Months Ended August 31, | For the Six Months Ended August 31, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Net income | $ 1,766 | $ 1,961 | $ 6,908 | $ 4,246 |
| Unrealized currency translation adjustments, net of tax | (424) | 475 | (775) | (304) |
| Comprehensive income | $ 1,342 | $ 2,436 | $ 6,133 | $ 3,942 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (In thousands except per share values) | ||
| August 31, | February 28, | |
| 2013 | 2013 | |
| (Unaudited) | ||
| ASSETS | ||
| Cash | $ 1,595 | $ 737 |
| Accounts receivable, less allowance for doubtful accounts of $426 and $298 as of August 31, 2013 and February 28, 2013, respectively | 45,102 | 39,581 |
| Inventories | 39,382 | 37,299 |
| Prepaid expenses and other current assets | 3,388 | 2,586 |
| Deferred income taxes | 1,239 | 1,238 |
| Current assets | 90,706 | 81,441 |
| Property and equipment, net | 13,646 | 14,018 |
| Deferred income taxes, net | 1,093 | 1,152 |
| Intangibles, net | 21,260 | 4,119 |
| Other assets | 337 | 386 |
| Total Assets | $ 127,042 | $ 101,116 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Trade accounts payable | $ 20,714 | $ 19,650 |
| Accrued liabilities | 14,526 | 13,641 |
| Lines of credit | 28,155 | 8,872 |
| Current maturities of notes payable | 1,011 | 1,246 |
| Current liabilities | 64,406 | 43,409 |
| Notes payable | 3,782 | 5,222 |
| Other long term liabilities | 1,033 | 647 |
| Total Liabilities | 69,221 | 49,278 |
| Preferred stock, 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at August 31, 2013 and February 28, 2013 | 337 | 337 |
| Common stock, 20,000 shares authorized, $.001 par value; 3,801 and 3,799 shares issued; 3,274 and 3,282 shares outstanding at August 31, 2013 and February 28, 2013, respectively | 4 | 4 |
| Additional paid-in capital | 10,656 | 10,639 |
| Retained earnings | 52,953 | 46,049 |
| Treasury stock, 527 and 517 shares held at cost at August 31, 2013 and February 28, 2013, respectively | (5,468) | (5,305) |
| Accumulated other comprehensive income | (661) | 114 |
| Shareholders' Equity | 57,821 | 51,838 |
| Total Liabilities and Shareholders' Equity | $ 127,042 | $ 101,116 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| (Unaudited) | ||
| For the Six Months Ended August 31, | ||
| 2013 | 2012 | |
| Operating activities: | ||
| Net income | $ 6,908 | $ 4,246 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation and amortization | 2,120 | 1,327 |
| Gain on sale of property | (3,379) | -- |
| Other non-cash adjustments | 121 | 85 |
| Changes in assets and liabilities, net of acquisition: | ||
| Accounts receivable | (2,254) | (6,299) |
| Inventories | (42) | (4,272) |
| Prepaid expenses and other assets | (740) | 463 |
| Trade accounts payable and accrued liabilities | 465 | 8,474 |
| Net cash provided by operating activities | 3,199 | 4,024 |
| Investing activities: | ||
| Acquisitions | (23,814) | (7,356) |
| Proceeds from sale of property | 4,630 | -- |
| Capital expenditures | (319) | (638) |
| Net cash used in investing activities | (19,503) | (7,994) |
| Financing activities: | ||
| Net borrowings under lines of credit | 18,929 | 4,808 |
| Repayments of notes payable | (1,666) | (382) |
| Purchase of treasury stock | (103) | (558) |
| Stock options (repurchased) exercised, net | 17 | (25) |
| Dividends | (4) | (4) |
| Net cash provided by financing activities | 17,173 | 3,839 |
| Effect of exchange rate changes on cash | (11) | (37) |
| Net (decrease) increase in cash | 858 | (168) |
| Cash at beginning of period | 737 | 976 |
| Cash at end of period | $ 1,595 | $ 808 |
Q.E.P. Co., Inc. Richard A. Brooke Senior Vice President and Chief Financial Officer 561-994-5550
